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Cape Town - South African business confidence is as low as it was during the 2008/9 financial crisis. A lot of the blame now can be placed on politics.

However, it is always darkest before dawn and we are most probably at the bottom of the economic cycle. This week’s share watch looks at shares that should do well when the economy picks up from its current low levels and business confidence starts to emerge.

PPC is continuing its strategy to achieve 40% of revenue from outside of South Africa. The company cites a very competitive local market and lack of infrastructure spending as the main reasons to move into other African markets.

This is evident when looking at Ebitda for the year to March 31 2017. Earnings before interest, tax, depreciation and amortisation, a measure of a company's operating performance, shows a decline in Southern Africa of 19% and an increase in the rest of Africa of 19%. Margins in the rest of Africa is expected to remain materially higher than the margins in Southern Africa.

PPC informed the market on Monday that the merger discussions with AfriSam are continuing. If the merger does go ahead, PPC will enjoy a bigger market in Southern Africa with potentially better margins.

Hudaco Industries is a South African company specialising in importing and distributing high quality automotive, industrial and electrical consumable products. Hudaco supplies to two main markets namely the consumer spending market and engineering consumables market.

The group has delivered a pleasing set of the results for the first half of 2017 in an extremely tough trading environment. Revenue was up 7% and operating profit was up 9%. It must be noted that ongoing operating profit was 0.8% lower.

Ongoing operating profit excludes any bolt on acquisitions. These results are commendable given that South Africa is in a technical recession. The company has cited the mining charter as a possible point of concern.

However, Hudaco is ever decreasing its mining exposure. Trading on attractive valuations, Hudaco is a share that investors can look at the bottom of an economic cycle.

Omnia holdings is a diversified group that provides specialised services and solutions for the agricultural, mining and chemical industries. From the three divisions, Mining and Agriculture contributes more that 80% of the earnings.

The results for the year ending March 2017 was below market expectations. Revenue for the group declined by 3%. Other factors such as the strengthening rand and lower manufacturing activity had a negative impact on Omnia's results.

Coming from a low base, Omnia might offer investors a decent return going forward. The agricultural division should pick up given the drought coming to an end. Despite the recent uncertainty around the mining charter, mines are better capitalised, which will prove well for businesses like Omnia.

The total tonnes mined increased by 3.8% to 2.7 million tonnes. Encouragingly, sales increased by 10.8% and Lonmin is maintaining its full year sales guidance of 650 000 to 680 000 ounces.

Due to the better production numbers, unit costs reduced to R11 278 per ounce. The average rand full basket price is around R11 506 per ounce. Lonmin also saw an increase in their cash position. Shareholders in Lonmin will hope for a continued improvement in production numbers that will see unit costs decreasing further.

Master Drilling is a company that specialises in raisebore drilling. The company delivers services to many blue chip and mid-tier mining, energy and engineering companies. Being exposed to the cyclical mining sector, Master Drilling will be on shareholders’ radars should commodity prices continue to strengthen.

The company only generates one third of their revenue in Rand. Master Drilling has operations in Asia, Europe, Latin America and North America. Master Drilling is a share that can easily be overlooked by institutional money due to its small nature. It is trading on an attractive price to earnings ratio of 7.

* Kirk Swart is an analyst at Overberg Asset Management,
an Authorised Financial Services Provider (No 783) which specialises in
the private management of local and global discretionary portfolios as
well as pension products.

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